"The Future of Foreign Aid" -- Brian Atwood

Statement of J. Brian Atwood
Administrator
U.S. Agency for International Development
to the
Committee on International Relations
House of Representatives
Washington, D.C.
May 9, 1995

Mr. Chairman: Thank you for allowing me this opportunity to
appear before the Committee today. We all recognize the gravity
of the issues before this committee and I must be frank. The
Administration is deeply disturbed by the budget and
reorganization proposals being considered by this committee with
regard to our international affairs operations. While the
Administration welcomes lively debate on the best course for
America's foreign policy in the post-Cold War period, we fear
that this bill would force America to abdicate a large part of
its international leadership.

As former President George Bush said so eloquently last week, "I
believe winning the peace and expanding the promise of democratic
capitalism in this new era are possible only if America continues
to lead in the world. We cannot retreat and turn inward. We must
stay engaged." President Bush, during his visit to Romania,
argued that, "we can already hear the heated rhetoric of those
who would respond to the economic uncertainty many Americans face
by calling us home into some kind of Fortress America. They
preach a peculiar brand of neo-isolationism and protectionism.
Some even call themselves 'America Firsters.' But what they don't
seem to realize is that the best way to put America first is to
put isolationism and protectionism last. Churchill said 'the
price of greatness is responsibility.' Well in my view, the need
for American leadership has not diminished one bit; and yes,
there is a price to be paid for that leadership."

In considering both dramatically reduced funding levels for
international affairs, and restructuring the foreign policy
structure of the United States government, we need to act with
the utmost responsibility. At every step of the process we must
ask ourselves both what will be gained, and what will be lost. I
have looked closely at the reorganization and budget proposals
that the committee is currently considering. I cannot escape the
conclusion that these proposals, if enacted, will cost the United
States dearly.

The combined effect of the reorganization and budget cuts would
cripple America's global leadership and our ability to advance
U.S. interests abroad. The reorganization has been trumpeted as
an efficiency move, yet it is far from clear that it will improve
management or save money. The GAO was unable to conclude that
there would be significant savings from merging the four
agencies. Everyone close to the issue has realized that savings
will only be obtained by slashing vital programs, not because of
any improvements in efficiency.

The current budget proposals target development assistance
for the deepest cuts. Such cuts would do profound damage not only
to friendly nations struggling to establish market economies and
democratic systems, but to American families and America's long-
term economic health. If development assistance is cut by one-
third, the United States will be faced with very hard choices:
abandoning entire sectors of our development programs; leaving
entire regions of the world; or closing perhaps twice as many
missions as we already have. In any of these scenarios,
American's national interests and the poorest of the poor around
the world will suffer greatly:

In some parts of the world, these cuts would clearly benefit
the trade prospects for our economic competitors, while
undermining the growth of U.S. exports to developing
markets. America's ability to move nations toward free
market reforms would be drastically reduced and countless
U.S. firms would lose a valuable "foot in the door."
America would be giving away the comparative advantage it
now enjoys in fast growing export markets such as
environmental goods and services, high technology products
and agricultural processing equipment. Tens of thousands of
American jobs would be sacrificed as a result. In those
countries not deemed as good economic prospects, other
donors might simply follow America's lead and abandon those
most in need. Cuts in U.S. assistance have the potential to
trigger a chain reaction of cuts from other donors to the
most vulnerable nations.

Budget cuts of these levels could result in hundreds of
thousands of easily preventable deaths of children in the
developing world. It is possible that four million children
would not be vaccinated, that there would likely be 600,000
more unintended pregnancies around the globe each year, and
that at least 100,00 children could die because they were
denied oral rehydration therapy.

These proposals would abandon America's longstanding
commitment to advancing both free markets and democracies.
America would still provide assistance to refugees, but
would deny nations the support needed to ensure their
citizens don't become refugees. America would be sending a
clear signal to the international community that development
was no longer a U.S. priority. As a result, The United
States would lose the leadership that it needs to work with
our international partners.

The reorganization of the U.S. government's foreign policy
structures could cause major disruptions in the conduct of
U.S. foreign policy for years to come. Instead of
undertaking a top-to-bottom review of the full range of
foreign affairs conducted by the U.S. government, Congress
would be shotgunning through legislation opposed by the
Administration . The reorganization proposal would likely
add layers of unneeded bureaucracy to our foreign affairs
operations, diminish U.S. flexibility in meeting pressing
foreign policy challenges and sacrifice long-term
development to short-term political gain. Deep cuts in the
150 account could also cause immediate, and expensive,
reductions in force at these agencies.

The reorganization proposal would cast away the sweeping
reforms that USAID and the other agencies have put in place
during the Clinton Administration, and send a message
government-wide, that reform and innovation are to be
punished -- not rewarded.

I would like to deal with each of these points in turn. One
of the most enduring benefits of foreign assistance programs has
always been the new markets and increased trade it has helped
generate for the United States. This is especially true with the
end of the Cold War. Some have suggested that opening America's
export markets is best left to American business, not the U.S.
government. Private investment is indeed a crucial part of the
equation, but such reasoning misses a more fundamental point:
American companies will not invest in a country until they have
some basic reassurances that their investment will be reasonably
safe and given fair treatment under the law.

Will IBM invest in a country that does not have fair
business codes? Will Ford Motors be attracted to a nation that
does not have viable commercial banks and reasonable tax and
tariff standards? Will Fortune 500 companies find investing in
nations ruled by unstable regimes appealing? The answer in each
case is clearly no. Foreign assistance helps create the stable
and transparent business standards that U.S. companies must have
to operate in a country. It is U.S. technical assistance and
expertise that has traditionally been the first Marine on the
beach in developing markets. It is U.S. assistance programs that
have leveled the playing field so private investment can serve as
the true engine of development.

Most of the growth in U.S. exports is not coming from trade
with our traditional partners, but from the explosive growth in
American exports to the developing world and nations who are
making the transition away from socialism toward free markets.
Between 1990 and 1993, U.S. exports to developed countries grew
by 6.2 percent. In contrast, during that same period, U.S.
exports to developing countries grew by a remarkable 49.8
percent. This growth in trade to the developing world meant $46
billion more in U.S. exports and 920,000 more jobs in the United
States.

Importantly, developing countries are particularly good
customers of the type of high-tech products which we lead the
world in producing, such things as pollution control equipment,
communications equipment and computers. Exports to countries in
both Asia and Latin America are one of the primary reasons our
unemployment rate in the United States is low and our economy is
still growing.

The incredible growth of American exports to these emerging
economies is not the product of luck. Years of efforts through
U.S. foreign assistance programs helped foster an enabling
environment for American trade in these markets. Programs not
only in economic growth, but in institution building, civil-
society and the environment all boost American trade. When I look
at the proposals that this committee is considering, if I didn't
know better, I would think they were written by our business
competition eager to give themselves an advantage in tomorrow's
markets.

Does it make any sense for America to potentially turn away
from a $300 billion annual market in environmental goods and
services? The total global market value for environmental goods
and services is estimated to be $600 billion by the end of the
decade. Without U.S. support for environmental programs underway
in these countries, American firms will be losing their
comparative advantage. It makes no sense at all to potentially
drastically cut these funds and shoot our own businesspeople in
the foot. The possible loss to the American economy could exceed
tens of billions of dollars and mean the loss of thousands of
American jobs. Is that something you would be eager to explain
to your constituents?

Not only would these budget cuts hurt America's economic
prospects, they would have a devastating effect on the poorest of
the poor around the world. In countries that are not yet
economically promising, the U.S. budget cuts could well trigger
other donor nations to simply abandon their commitment to helping
the less fortunate as well. In the end, the cuts would not only
mean severe hardships for the have-nots of the world, they would
be felt in our own backyard. Foreign economic and humanitarian
assistance programs make up less than one half of one percent of
the U.S. budget. This small contribution by the United States
makes a big difference around the world.

In any scenario, as I have said, budget cuts of this
magnitude would mean very hard choices. In even the best of
cases, the consequences of these cuts would be so severe that I
think few Americans would support them if they knew their impact.
A 30 percent cut in USAID's child survival program would mean
that more than 4 million children will likely not be vaccinated,
greatly heightening their risk of death or severe illness from
such preventable diseases as measles, whooping cough and
diphtheria. With cuts of these levels, millions of children and
adults would be robbed of the most fundamental way to improve
their lives and the lives of their families -- an education.
These cuts would deeply impact some of the same programs you have
worked so hard to champion, Mr. Chairman. A 30 percent cut in
USAID's microenterprise program would probably translate into the
equivalent of about 4.2 million loans to the poor that would not
be made over the next ten years. A 30 percent cut in resources
for USAID's AIDS prevention efforts could lead to an increase in
infection rates resulting in almost two million preventable new
HIV infections by the year 2000.

Oral Rehydration Therapy (ORT) prevents an estimated one
million deaths a year due to acute diarrhea. Usage rates for ORT
in all areas of the world have now risen to 40-65 percent.
Despite the steady growth in ORT use, three million children
still die from diarrheal disease annually. A cut of 30 percent in
child survival resources would likely mean at least 100,000
children's lives would be lost each year for lack of this cheap
and simple treatment.

Perhaps there is no better illustration of the penny-wise,
pound-foolish nature of the budget cuts than polio. Polio has now
been eradicated from the Western Hemisphere through the combined
efforts of USAID, UNICEF, the Pan American Health Organization
and Rotary International, greatly reducing U.S. costs to prevent
this dread disease and to treat polio victims. A 30 percent cut
in child survival resources would undermine the USAID-supported
initiative to eradicate polio from the rest of the world by the
year 2000.

But this would mean more than just not achieving the goal of
eradicating polio from the world. It would also mean that the
United States would continue to be forced to spend some $300
million in public and private funds a year to prevent polio in
American children -- a cost far higher than that of the
eradication program. Do we not go to the dentist to save the
cost of a single visit? Do we not change the oil in our cars
although we could save $20 each time we didn't? Then why are we
here today considering eliminating investments that ultimately
save the United States money?

It is interesting that the budget proposals being considered
by this committee leave funds for disaster and refugee assistance
virtually intact, yet slash funds for development assistance. It
is curious to me that the United States would wish to pursue a
course where we help victims, but refuse to prevent people from
becoming victims. America, and I am very proud of this, has
always been willing to lend a helping hand to those whose lives
have been shattered by flood, famine and war. That should not
change.

Since World War II, America has also had the foresight to
help other nations help themselves. Development assistance
programs have always been designed to move countries to the point
where they no longer need assistance. Countries that can feed
themselves; countries that are free and democratic; countries
that are good trading partners and good allies -- it has always
been the goal of America's assistance programs to help create
independence and self-sufficiency. And it has worked. South
Korea, Taiwan, the Marshall Plan countries, Cost Rica, Thailand -
- the list of nations who have graduated from our assistance
programs offer a remarkable legacy to the vision of America's
bipartisan foreign policy leadership.

Now we stand on the brink of abandoning this leadership.
Instead of helping nations prosper, we would only be in position
to assist them after they collapsed. Do we really wish to
pretend that we can exist as Fortress America, only periodically
air- dropping food and water into nations as they implode like
Rwanda or Somalia? As we continue to cut development assistance,
is anyone really surprised that we spend more in emergency
assistance? Building democracies and free markets does not
happen overnight. Shaping a safer and more prosperous world is
demanding and full-time work. We should not abandon the long-term
commitment to development that has served this nation so well.

I want to say that I understand the difficult task that you
have before you in marking up the FY 1996 bill. Cuts must be
made and I realize that foreign assistance seems like a natural
place to start. The Clinton Administration does have funds for
international relations on a glide path of steadily reduced
budgets as part of the overall effort to reduce the deficit. The
question becomes, "Do we cut funds in a responsible fashion, or
an irresponsible fashion?" Since 1985, the International Affairs
Function of the Federal Budget has been cut dramatically in real
terms. In contrast, domestic functions increased 23.2 percent in
real terms. Ten years ago, the 150 Account absorbed 2.5 percent
of the federal budget. Today, it has been halved, to 1.2
percent.

Nevertheless, we have taken on significant new
responsibilities. We have initiated programs for Central and
Eastern Europe and the Newly Independent States. We have
dramatically expanded our activities in South Africa. We have
launched microenterprise and environmental initiatives in Latin
America. We moved quickly to support the peace process in the
West Bank and Gaza. We have already cut our small development
budget by 20 per cent in the last two years. We will never
balance our budget if we fail to compete in the global economy,
if we fail to create the new markets for American products in the
developing world, or if we are forced to rescue whole regions
that descend into chaos in part because we didn't take preventive
action.

It is equally troubling that Congress is currently
considering dramatically reorganizing part of the foreign policy
structure of the United States. I do agree that it is time to
reexamine all of our foreign affairs programs in the wake of the
Cold War to ensure that they are appropriate, advance U.S.
interests and are cost efficient. When looking to overhaul the
America's military structures, the Congress and the
Administration undertook an extensive and carefully executed top-
to-bottom review of the Pentagon's capabilities, needs and
potential. In contrast, when it comes to the foreign policy
structures, which are equally vital to America's security,
Congress is rushing through proposals without giving them a full
public hearing or a thoughtful analysis. This is dangerous
approach that makes for both bad precedent and bad policy.

The Administration is strongly opposed to combining four
agencies with distinct missions into a single mega-bureaucracy.
This reorganization plan does not make sense from a management
perspective, it does not make sense financially, it sets
dangerous precedent, it undermines the ability to conduct a sound
foreign policy and it simply has not been well thought out or
properly debated. USAID already directly supports U.S. foreign
policy goals, under the overall guidance of the Secretary of
State. But the mission of USAID has always been different from
the core focus of the Department of State. The Department of
State works in large measure on our bilateral relations with
foreign governments and must often deal with difficult crises in
those relations. The State Department's activities tend to have
a relatively short term focus and typically involve political
issues in our relations with other governments. State Department
personnel are trained in diplomatic reporting, negotiation,
representation and political analysis.

USAID is charged with promoting long term development in the
world's less advantaged countries. USAID is now also engaged in
helping countries of the former Soviet bloc to make the difficult
transition from autocratic, command economies to democratic, free
market economies. USAID carefully monitors the way our resources
are spent to ensure that they are applied responsibly and
effectively. USAID's field missions enable us to plan our
programs and projects with a maximum degree of effectiveness and
to ensure that our programs are, in fact, implemented as planned.
Our field missions have made us the most effective aid agency in
the world. USAID's staff is technically proficient in such fields
as public health, nutrition, energy and environmental
conservation.

The missions of USAID and the Department of State are
different in time horizon and focus; they involve working with
different types of partners; and they require quite different
skills of their staffs. They reinforce one another, but they are
not the same. This is even more true today than it was during
the Cold War when policy was organized around the common goal of
defeating communism. This reorganization plan is the equivalent
of asking a governor -- in addition to their numerous other
pressing responsibilities -- to take control of day-to-day
management responsibilities for the city governments across a
state. Is the average governor, as gifted as he or she may be,
trained in the nuances of local road repair, wastewater treatment
and functions of the city schoolboard? Of course not. Such an
approach would make no sense. Then we must ask ourselves, "Is the
average diplomat, adept as he or she is in international
relations, well versed in agronomy, economic policy reform,
telecommunications and arms control verification?" This approach
does not make sense.

There is also the very real danger that a development
assistance program submerged into the Department of State will
find development overwhelmed and downgraded by the compelling
political crises which will remain the core mission for the
Department of State. The development mission would become a weak
sister, with little authority over its own budget or management
and whose ability to work with others in the international
community was greatly diminished. Long term development goals
would all too often run the risk of being subsumed by short term
political expediency. Requiring the approval of regional
Assistant Secretaries of State for each and every aid project
before it goes forward would effectively lodge the power to
decide on and disburse aid funding in the regional Assistant
Secretaries hands, obviating the need or rationale for an
Undersecretary of State for Development.

If it is the wish of this Committee and others to downgrade
the development mission of this country, than a reorganization of
the type proposed here would make sense. But no one here has
raised the question of whether the development mission should
continue or not. This kind of sea-change in policy should be
carefully explored and debated on a bipartisan basis before we
rush to it. We should not prejudge the outcome of a reasoned
discussion of this issue through a premature reorganization. We
should decide basic policy questions before turning to
organizational issues.

Some have argued that there is insufficient coordination
between the Department of State and USAID, and that a merger
would strengthen that coordination. I would like to see details
of where our coordination is weak. There are formal and informal
coordination arrangements at every level of our two agencies'
operations, in the field and in Washington, from the lowest staff
level to the highest political level. I attend the Secretary of
State's morning staff meeting three times a week; I attend a
special meeting with him, the heads of ACDA and USIA once every
two weeks; and I have regular meetings with the Deputy Secretary.

USAID coordinates with the Department of State in regard to
budget, policy, programs and financing. There are formal and
informal coordination arrangements at every level of our two
agencies' operations, in the field and in Washington, from the
lowest staff level to the highest political level. I cannot
argue that the coordination between us is perfect or that there
are not at times differences between us. There are bound to be
such differences, given our distinct but mutually reinforcing
missions. But these differences are seldom serious, and we are
all committed to resolving them responsibly and quickly whenever
they appear.

The Committee has not specified the problems it seeks to
resolve with the merger proposal. It proposes to move
organizational boxes around before examining the basic issues of
objective, mission and purpose of the various foreign affairs
agencies it proposes to merge. Nor has this Committee explored
carefully the programmatic or budgetary impact of its proposals.
I think this approach is unwise.

The first question that should be asked in any effort of this
kind is, "What are we trying to achieve?" What are the purported
problems this legislation is intended to address? In fact, the
problems to which this legislation purportedly addresses are
minimal or non-existent. The Vice President's study of these
very issues earlier this year concluded that a merger of these
agencies was both unwise and unnecessary.

This reorganization proposal puts Congress in the position
of telling the Administration how to organize itself to conduct
foreign affairs. Just as the Administration does not tell
Congress how to organize itself, and just as the federal
government does not dictate to the states how they should
organize themselves, it makes little sense for Congress,
unilaterally, to order the Administration to reorganize its
agencies.

Reorganization, as proposed in this bill, simply does not
make sense from a management perspective. All through the
Congress and all across America, managers are trying to create
public and private organizations that are more flexible,
effective and less centralized. Ironically, this reorganization
plan proposes to create a monster-bureaucracy that is the polar
opposite of those ideals. By merging organizations with distinct
missions, this proposal is advocating a top-heavy, inefficient
style of management. In the last 18 months, for example, USAID
has begun to reduce the time it takes to design and implement a
project from 27 months down to a brisk 6 month process. The
reorganization plan would quickly see the trend reversed, and
projects would be slower moving and less responsive to pressing
U.S. interests.

Let me put it even more simply. Can anyone on this
committee name a major American corporation that would advocate
putting disparate products, personnel and strategies under the
same centralized corporate management? This is a recipe for
foreign policy disaster. As former Deputy Secretary of State
Wharton -- who studied the functions of USAID and the State
Department at length -- said recently, USAID, "is on the right
track, in fact, merging it with the State Department would lose
an effective and flexible weapon in building democracy and
promoting peace."

Furthermore, if existing missions were kept intact, there
would be little cost savings achieved through reorganization.
Despite allegations to the contrary, there is little duplication
between USAID and the Department of State. Even though we both
have Africa Bureaus or Latin America Bureaus, our staffs perform
very different tasks. If the missions of both agencies were to
be retained, cost savings would be minimal -- it is even possible
that costs would rise in the event of a merger, at least in the
short run. This is not only the Administration's view. It was
also the view of the Ferris Commission, and the General
Accounting Office was unable to conclude reorganization would
result in significant savings.

The only way to make major savings in costs is to abandon
existing missions and programs. The bill would set USAID's
operating expenses for FY 1996 and 1997 at levels which would
require reducing our direct-hire workforce by almost a thousand
people during the next nine months. Such drastic measures could
mean reductions in force before post-consolidation requirements
were known. Cutting staff, with or without consolidation, would
be expensive, and the bill has not stated the costs of reductions
in force.

No agency in government has worked more aggressively to
embody the spirit of reinventing government than USAID. USAID is
far leaner and more focussed than it was just 18 months ago.
Eliminating USAID would send a devastating message to all federal
employees -- reform is not important; doing your job well is not
important; moving boxes around on an organizational chart is.

To begin our reform process, we offered the entire agency as
a laboratory for Vice-President Gore's "Reinventing Government"
effort. As a result, USAID has put sweeping changes in place.
During the last year USAID has:

Announced the close-out of 27 overseas missions over the
next three years and established a timetable for how long
the agency should be involved in countries in which it
currently operates;

Eliminated 90 organizational units in Washington; cut back
70 senior positions, and reduced total staff by over 1,000.

Developed a new electronic acquisition and procurement
planning system that replaces 65 different systems and will
eliminate tons of paperwork and expedite contracting.

Established interrelated goals around which financial and
human resources are focused: encouraging broad-based
economic growth; protecting the environment; building
democracy; stabilizing world population growth and promoting
human health; and providing humanitarian assistance and
aiding post-crisis transitions.

Completed an agency-wide reorganization and "right-sizing"
effort to streamline the agency.

Introduced reforms to open up USAID's procurement to the
best expertise in America, whether that expertise is located
in Seattle, Milwaukee or other places "outside the beltway."

Reduced project design time by 75 percent and developed a
framework to unify USAID's multiple personnel systems.

Our efforts are succeeding. So much so that a member of the
Ferris Commission which President Bush appointed to review USAID
in 1993, said "This is the most remarkable transformation of a
government agency I have ever seen."

We haven't made these changes to save a bureaucracy. We
have fixed what is wrong because we believe that if America is to
lead, it must lead with the best development agency in the world.

In conclusion, I would stress that this debate is about
leadership. American can not truly lead internationally if we
compromise the small investments that make that leadership
possible. This bill would sacrifice that leadership. The United
States will jeopardize its own economic future if we abandon
developing markets. This bill will undercut America's hopes for
continuing economic growth and prosperity. This bill would lead
to untold suffering for millions of families around the world who
only need opportunity to succeed. The ability of the United
States to project a forceful foreign policy will be undermined if
we throw away important diplomatic assets. This bill would
abandon tools that every President since Truman -- Republican and
Democrat -- have found essential to promoting America's interests
abroad. In sum, far, far more stands to be lost through this
bill than the United States would gain.

The choices are clear.

#####

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